The Characters:
I cut the figures roughly out of balsa wood, then refined them with sandpaper. I used a hot knife (a knife blade attachment to a wood burning kit) for cutting the balsa wood, which worked pretty well. For the fine details, I used large grit sandpaper if I needed to completely re-shape something, or fine grit to just smooth edges.

Here you can see a rough cut (right) and sanded (left) present box

I painted the figures using basic kids acrylic paints and simple shapes and patterns. I started by painting the background colors first (boots, pants, jacket, face) then adding details on top (buttons, eyes, mouth). Spaces I couldn't cut out (eg the triangle under the arm) I left un-painted so that it blended in with the bases.

Here you can see the characters in various stages of painting

I broke two of the characters while cutting them out (an arm and a sword) and used wood glue to put them back together.

For the bases I bought little round wood circles at a craft shop. The characters wouldn't stand on their own, so I cut out triangles of balsa wood and used wood glue to attach them to the bases.

Once the triangles were secured, I next wood-glued the characters to the bases and triangles (in front of the triangles).

I then painted the backs of the characters white. I left the bases un-painted.

Scenery:

The scenery was made in a similar fashion, with triangle supports to help hold them up.

The bulbs on the tree are just single dots of gold or red with a smaller dot of white in the upper left corner of each.

For the presents I made 4 separate boxes, then layered them across the base.

The curtains are three pieces (top and two sides) with diamond embellishments to help glue the pieces together. There are also rectangle embellishments on the back to further secure the pieces together. The curtains sit on two stands with very large triangle supports.